Google may own online ads but it still needs to figure out mobile, and it’s betting YieldMo can help

Google’s dominance in online advertising is no secret — it controls an estimated 40 percent of the $42-billion market — and it has a similar share of the mobile ad market. But traditional tools like AdSense aren’t doing as well in mobile as they are on the desktop, which helps explain why Google Ventures just invested in a competitor to AdSense by leading an $8-million financing round in a New York-based mobile advertising startup called YieldMo.

According to YieldMo founder Mike Yavonditte, the search giant is so eager to figure out how advertising can be improved for mobile apps and websites that when he visited Google Ventures to describe what YieldMo does with advertising, “they basically said yes on the spot.”

While much of the mobile advertising market consists of ad networks and exchanges — which produce low-margin, commoditized banner and display ads — Yavonditte says YieldMo works directly with publishers and advertisers (including media outlets like Reuters and the New York Daily News) to create custom advertising units for specific spots on specific pages, and then tests and changes them on the fly by watching how readers interact with them.

This kind of A/B testing can improve monetization by orders of magnitude, the YieldMo founder says. With the New York Daily News, for example, Yavonditte said the company’s advertising is generating “three to four times the CPM (cost per thousand) that they were getting with their own banner ads.” And advertiser Rosetta Stone told the company its ads performed better than either Google’s or Facebook’s during Black Friday and Cyber Monday.

YieldMo isn’t Yavonditte’s first foray into advertising, nor his first attempt at competing with Google: a previous company he ran called Quigo offered sponsored links, much like AdSense, and managed to compete well enough with Google that AOL acquired it in 2007 for $361 million. Yavonditte said many of his former colleagues from Quigo are now working at YieldMo.

The startup, which was launched last year, has raised $12 million in total (including the latest round) from investors such as Union Square Ventures and Rhodium.